[The following post is contributed by Sunayna Jaimini, who is an Associate at Singhania and Partners, New Delhi and can be contacted at firstname.lastname@example.org. The post contains research inputs from Kriti Kaushik, Associate at Singhania & Partners, New Delhi who can be contacted at email@example.com
This is a continuation from a previous post available here]
Before discussing the judicial decisions on the matter, it is important to mention that the judgments below analyze the issue of direct and indirect sale to industrial and institutional consumers under the Standards of Weights and Measures (Packaged Commodities), Rules, 1977. In the year 2009, Legal Metrology Act replaced the Standard Weights & Measures Act, 1976 and as a result the rules made under the erstwhile Act were replaced with the rules under the Legal Metrology Act. However, the below mentioned judicial decisions are still relevant as the same errant drafting that was present in the new Packaged Commodity Rules.
The Indian courts have taken different views on the interpretation of these provisions. The Hon’ble Bombay High Court in the matter Larsen & Toubro Limited vs. Union of India [2012 (275) ELT 153 (Bom)] while deciding on the issue whether Rule 6 declarations (under the erstwhile Standard Weights and Measures (Packaged Commodities), Rules, 1977) are required on packaged commodities sold to institutional or industrial consumer through a stockiest, has held that Rule 6 would not apply to industrial and institutional consumers who buy the commodities directly from the manufacturer. All other industrial and institutional consumers of the packed commodity to whom the retail package are not sold directly to the provisions of Rule 6 shall apply.
On the other hand the in the matter of Ewac Alloys Limited v. Union of India [2012(2) Kar LJ 324] the Hon’ble Karnataka High Court, differed from the decision above and held:
In the case of retail package, the manufacturer of goods meant for industrial use may not be able to supply the goods directly. Therefore, they may take the assistance of a stockiest. If the customers are spread over the country and if the manufacturing unit is in one part of the country and they want to concentrate on manufacturing activity, they may not have resource or ability to arrange for sale of their product throughout the country. In those circumstances, it is quite but natural that they need middle men or stockiest, as distributors, through whom they would distribute their product or sell their products to an industrial or institutional user. In such an event, that packaged commodity cannot be construed as a retail package…
…Therefore, it is clear that the protection under this Act is confined only to individuals and persons who are eking out livelihood by self employment and not to institutional and industrial consumers or consumers who purchase goods in large quantities. Therefore, requirement of Rule 6 is not required to be complied with by a manufacturer who sells his packaged goods to an industrial or institutional consumer through a stockiest.”
The decisions of the Karnataka and Bombay High Courts are conflicting with each other. On one hand the Bombay High Court has considered that only direct sale by manufacturer to the distributor would be considered under the exception to Rule 3, however, any sale made through a stockiest would be considered a retail sale. On the other hand Karnataka High Court has emphasized on the intent of packaging, and has held that if the intent of the package was for industrial or institutional it does not matter whether the sale was made through a stockiest or the manufacturer directly.
Upon the detailed analysis of the judgments above, we are more partial to the decision of the Bombay High Court, the reason being, that the main intention of Chapter II and specifically declaration under Rule 6 is that the consumer should be able to locate the manufacturer or the packer in case of any grievances with the product. The individual retail consumer is not in direct contact with the manufacturer and the product and declaration thereon are the only connection between the manufacturer and the ultimate consumer. Therefore, declarations regarding the product are required to be placed directly on the product.
However, the packages for industrial or institutional consumers do not require declarations as the products are sold directly by the manufacturer and the consumer has a direct link or connection with the manufacturer. Such an industrial or institutional consumer, in case of any grievances with the product, knows the person and point of contact with the manufacturer. Further, it could also be argued that the manufacturer has either had the opportunity to prove its worthiness to such an industrial or institutional consumer at the time of sale, or that the industrial and institutional consumer has contacted the manufacturer on the basis of the goodwill of the manufacturer. In either of the above scenarios the consumer is making an informed choice and the details of the manufacturer and the product are known to the consumer. Therefore, the requirement to make compliances under Chapter II does not arise for packages directly sold to institutional and industrial consumers.
Clarity by Legislative Intervention
From the above we can see that the judicial decisions were divergent on the status of packaged commodities meant for institutional and industrial consumer sold through a distributor or stockiest. Therefore, the need of the hour was either a Supreme Court ruling, at the cost of being reprimanded for judicial legislation in the face of legislative apathy to the whole situation, or a (divine!) legislative intervention by amendment of the provisions of the Package Commodity Rules.
Much to the relief of manufacturers catering solely to institutional and industrial consumers, on June 6, 2013, an amendment was made to the Packaged Commodity Rules by which the exclusion of ‘industrial and institutional consumers’ from the meaning of ‘ultimate consumers’ in the definition of “retail package” was removed. Thereby, any package intended for industrial or institutional sale may be considered retail package. Further, the explanation under Rule 3 providing the meaning of ‘industrial’ and ‘institutional consumers’ has been lifted and placed under the Rule 2 the definitions clause.
The effect of the above-mentioned amendment is such that any product purchased by an industrial or institutional consumer from an entity other than the manufacturer itself will come under the purview of retail package. Meaning thereby, the declarations required under Rule 6 of the Packaged Commodities Rules will be applicable on packages sold through a distributor.
Simply put, the provisions of Chapter II shall be applicable to all such industrial or institutional consumers who buys the product from an entity other than the manufacturer.